Helping female-led firms in Ethiopia become more resilient in turbulent times: World Bank Blog By Lauren Marino and Sophia Friedson-Ridenour
Hawassa, Ethiopia (PANA) - On a recent Thursday afternoon, Jalene’s small coffee shop and roastery in Hawassa, Ethiopia, was enveloped in the smoke and scents of roasting coffee beans.
She bustled about attending to customers and supervising staff to keep operations moving smoothly. Jalene’s main source of income derives from processing green coffee beans, selling them in bulk to local hotels and brewing some on-site for customers.
To an outsider, it looked like business as usual. But behind the scenes, Jalene was busy strategising about how to cope with the high inflationary environment that she, like many business people find themselves in.
Globally, the inflationary pressures the world has been grappling with in the wake of the COVID-19 pandemic and the war in Ukraine pose a serious challenge for entrepreneurs. The situation in Ethiopia is no different.
Ethiopia’s annual inflation rate has risen above 30% in recent years, forcing entrepreneurs to make hard decisions about how to keep their businesses afloat.
Jalene is one of 18 women who are part of the Women Entrepreneurship Development Project (WEDP) and a unique Africa Gender Innovation Lab (GIL) study that has followed these women in real time over a year and a half. This study is part of GIL’s Innovations in Financing Women Entrepreneurs (IFWE) initiative, which is piloting and evaluating new approaches to empowering entrepreneurs.
Observing and talking to these women month after month has provided insights into how they continuously adapt to keep their businesses going. While the innovative products and services that IFWE has piloted were not designed to ease inflationary pressures, they have the potential to increase the resilience of female-led firms like Jalene’s during turbulent times.
Based on our interviews, three common ways that women business owners adjust their business practices to address inflationary pressures are:
1. Investing in inventory and assets instead of cash savings: Many women described investing cash into physical assets that increased in value over time, rather than savings, which lost value day after day. Lalitu, for example, runs a textile business from a stall in the Addis Merkato and opted to buy quality textiles instead of increasing her cash savings. As inflation pushes women to focus more on inventory and asset investments, they need to be able to make informed decisions about where to put their money. IFWE is piloting a digital app that helps entrepreneurs record and analyze their business revenue and expenses. In the words of a pilot participant, “I have been able to see which items are well demanded by customers and which items are least demanded…I have come to make informed decisions about which items to buy more and which items to buy less of.”
2. Replacing informal sources of credit with (limited) formal loans: Inflation has disrupted informal credit markets that many women rely on. Women described how they used to take informal loans from friends, family, or other business associates, or bought inventory on credit from suppliers. Not only are people no longer keeping as much cash on hand to loan, but those informal lenders—just like banks—also worry that inflation will end up being higher than the interest rate and will not be profitable, and thus limit lending or require quick repayment. Jalene, for example, can’t borrow from friends anymore and she is now considering bank loans. Bank loans have long been difficult for women to access due to gender gaps in ownership of collateral. IFWE and WEDP are supporting Ethiopian banks and microfinance institutions to develop and pilot innovative approaches to lending that reduce reliance on collateral, for example, cash-flow-based lending and psychometric credit scoring, in order to make formal credit more accessible to women.
3. Using household savings to cover business needs: Minimising cash savings and limited access to credit means that women have both an increased need and incentive to shuffle money around in ways they hadn’t before to keep their businesses open. Many women described dipping into household savings to cover business expenses. Adey, who owns a Bajaj auto spare parts business, described how she and her husband have three different savings pots at home that they used to keep for different household needs, but which they have tapped into and pooled to provide a “business loan” for Adey.
Inflation puts pressure on limited household resources, requiring better coordination between spouses. IFWE recently partnered with Digital Opportunities Trust to pilot a couples-based business training.
A woman who attended the training with her spouse explained that during the training, “he [her husband] admitted that he hasn’t asked me what items I sell…” After the training, “he came by and observed the place I operate, and he asked me what additional items I wish him to supply.” Increasing support for women’s business in the household has the potential to help women-owned firms better weather challenging times.
Nearly 24,000 women who are part of WEDP and are similar to Jalene, Lalitu, and Adey have secured a business loan through the WEDP network, and more than 32,000 women have graduated from WEDP business and technical training programmes.
WEDP has become a trusted partner for many female business owners in Ethiopia, and IFWE and WEDP are working together to
develop and launch innovative solutions to empower and increase the resiliency of women entrepreneurs like Jalene, Lalitu, and Adey.
Note: All names in this blog were changed to protect the identity of programme participants.
Acknowledgments: This research would not have been possible without the hard work of our collaborators at Hawassa University: Melisew Dejene, Mahetem Feleke, Alemgena Gebreyohannes, Habiba Mohammed Yimam, and Semeredin Yimer.
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